By divulging offer pricing to all parties, who benefits?
In a continued bid to modernize real estate practices, the Ontario government is seeking consultation related to the rules for Real Estate Professionals (www.ontario.ca/realestateact). This is a good thing. It has been several years since the Real Estate and Business Brokerage Act has seen any significant updates.
One idea that has been making some noise is revamping the process for a multiple offer situation (a multiple offer situation is one in which a seller is presented with more than one purchase and sale agreement to consider, at the same time). How much information during the negotiation process should be conveyed to all parties? Should bid amounts be disclosed? There are strong opinions regarding these potential changes. Let's consider the options.
Since Jan. 1, 2019, there have been a total of 119 closed sales and sales pending (detached and condos via MLS) in Waterloo. Of those sales, 40 transactions resulted in a sale price over asking. This is a good indication that a multiple offer situation took place and that multiple offers are standard practice in our city. As it stands, the seller's realtor needs to be honest and disclose to all buyers bringing an offer how many offers will be reviewed. Furthermore, the seller's realtor must indicate to all parties whether the offer is their offer, from their brokerage, or another co-operating brokerage. Sometimes we are privileged with who the co-operating sales representatives are bringing an offer on behalf of their clients.
A potentially significant change is to disclose the terms of competing offers, including offer pricing during the negotiation process. Typically speaking, the cleanest offer is usually the most attractive to a seller. This means few (if any) conditions and a firm offer price wins in a multiple offer situation. By revealing terms and pricing of competing offers, buyers could have the ability to revise their purchase price until all other parties have exhausted their maximum bid. Multiple offers are very stressful for my buyer clients. Providing the opportunity to know the terms of other offers would likely ease a lot of unknowns during the process. Does this serve the seller's best interest though?
By opening the terms of all offers, it's possible we may not see as many excellent sales pricing for hot properties. Eliminating the unknown elements of competing offers benefits buyers, but it could prevent a seller from receiving an offer that far exceeds all others. As changes are still in a speculative stage, it's possible sellers may even be able to sign OREA Form 244 (Seller's Direction Re: Property/Offers) indicating they do not wish to divulge any terms of any offer they receive. Currently, this form is used frequently by sellers who want to direct a specific date they will consider offers and whether they would look at pre-emptive offers.
Regardless of what changes occur as a result of this consultation, it will be a healthy process that is long overdue. There is no harm in modernizing the practice of real estate and further promoting strong ethics and professionalism in an industry that works best when trust is the core element of all transactions.